This might come as a huge surprise to many people who think banks in the country are shylocks compared with their counterparts elsewhere.
This is because, the average lending rate, outside prime lending rate, is between 22 and over 30 per cent. The high cost of funds thus easily points to why entrepreneurship is at its lowest ebb in Nigeria. The real sector is on life support, the life threatening to snap.
Only the services, oil and gas and a few sectors that employ less than 10 per cent of Nigerians and account for a lower share of Gross Domestic Product (GDP) are able to get bank lending. One of the major sub-sectors that equally attracted banks loans – the capital market has dealt a bitter blow on banks, making them even shrewder.
Last week, an encounter with one of the foremost banks’ chief executives changed all the resentment one has harboured for banks. When Segun Agbaje, Group Managing Director and Chief Executive Officer of GTBank responded to why the cost of banks’ income was high, he pointed accusing fingers at the government which has failed so far in providing basic infrastructure.
According to Agbaje, the cost to income ratio in 2011 financial year stood at 50.82 per cent, down from 56.82 per cent in 2010. The stark implication is that, for every N100 income the bank made, it spent N50.82 as cost of making that income, leaving just N49.18 as real income.
John Okolo, an analysts based in Lagos wondered how such a bank would be able to give out loans at low or competitive rates, compared with our immediate environment – West Africa or Europe and America where lending rate is in the single digit.
Zenith Bank in its 2010 second quarter financials lamented the negative impact of infrastructural deficit on the bank’s operational costs.
According to its annual report, in addition, there is dearth of business opportunities to create yield assets. During the period in 2010, the cost to income ratio achieved declined from 74.2 per cent in the first quarter to 69.8 per cent in the second quarter.
That of First Bank appears to be the best in Nigeria with a recent cost to income ratio of just less than 50 per cent.
According to a report by the bank this year, there are some positive signs. It said the average cost-to-income ratio among African banks was 49.70 per cent, down from 61.87 per cent last year, despite an average increase in operating costs of 19.11 per cent, indicating a healthy increase in profits.
Based on an industry average, Okolo said the cost should be something in the region of 60 per cent, putting Nigerian banks at a disadvantage over other banks that get cheaper fund and spend less on providing their own infrastructure.
Agbaje also said the high inflation in the country also meant that lending rates has to be at least higher than inflation in the first place, thus raising the already high lending rates.
The issue of rising inflation is not helped by the three tiers of government expanding expenditure.